From 09:00 on July 21, 2022, the National Bank of Ukraine adjusted the official exchange rate of the hryvnia against the US dollar by 25% – from UAH 29.2549/$1 to UAH 36.5686/$1, taking into account changes in the fundamental characteristics of the Ukrainian economy during the war and strengthening of the US dollar against other currencies, according to a message on the NBU website.
“Such a step will increase the competitiveness of Ukrainian producers, bring together the exchange rate conditions for different business groups and the population and maintain the stability of the economy in a war,” the National Bank said.
He stressed that the official exchange rate of the hryvnia against the US dollar continues to be fixed.
“With the high uncertainty caused by the war, a fixed official exchange rate against the US dollar is the main anchor for stabilizing expectations and a key means of achieving the NBU’s priority goals. They are to ensure price and financial stability, which is an important condition for economic recovery,” the regulator explains its position.
The National Bank of Ukraine (NBU) will keep the current fixed exchange rate for the time being, Deputy Head of the Regulator Yuriy Heletiy said.
“For the time being, we keep everything as it is. A fixed exchange rate helps to contain the rate of price growth and meet the needs of the economy, which is slowly recovering. We will continue to monitor the situation on the market,” he said in an interview with Forbes.ua.
He added that the NBU is ready to consider refusing to fix the exchange rate if the uncertainty associated with hostilities decreases, in particular, the end of the hot phase of the war, as well as the stabilization of foreign exchange earnings and the improvement of the situation on the financial market.
In addition, although in the long term a fixed exchange rate has more disadvantages, in particular, it creates economic imbalances, reduces the competitiveness of Ukrainian producers, but it is necessary at present because it prevents panic, protects savings from hryvnia devaluation and reduces the cost of critical imports, Heletiy explained.
“At the same time, a floating exchange rate is not an end in itself, it is a means of achieving macro-financial stability,” the deputy head of the NBU specified.
As reported, on February 24, the National Bank suspended the work of the foreign exchange market of Ukraine, except for the sale of foreign currency, and fixed the exchange rate at the official level of that day – UAH 29.2549/$1, which led to the emergence of a “black” market, where in the first days the exchange rate reached 39-40 UAH/$1.
Later, the regulator allowed the sale of currency in branches under the threat of capture by the occupiers, by decision of their management, and from May 21, it canceled the upper limit of both the rate of selling cash currency by banks in Ukraine and the rate of converting the hryvnia into foreign currency on their cards outside the country. Previously, the ceiling for such an exchange rate was the official hryvnia exchange rate fixed on the first day of the war plus 10%, or UAH 32.18/$1. The ceiling for other currencies was calculated at the cross rate against the dollar.
The National Bank of Ukraine (NBU) expects a significant deterioration in trade indicators in 2022, but with a current account deficit near zero at the end of the year, Deputy Head of the Central Bank Serhiy Nikolaychuk said during a discussion organized by the Center for Economic Strategy (CES).
“So far, given our basic assumptions, we expect the current account deficit to be close to zero throughout this year. But in the memo, take into account that the outflow from the current financial account will be quite significant,” he said.
The deputy head of the National Bank noted that he had questions about the statistics recently published by the Ministry of Economy, in which imports in March fell significantly more than exports. “Based on the payments that we see, we do not see such a sharp reduction in imports and do not see that exports feel much better than imports,” Nikolaychuk stated.
According to him, an important component is the expansion of expenses of Ukrainian citizens abroad, which are not visible in the statistics for imports, but are visible in the payments of Ukrainian banks in foreign currency for Visa and Mastercard settlements. “In the balance of payments, this is an operation that leads to an expansion of the current account deficit,” the deputy head of the NBU explained.
He also clarified that now, when analyzing the current account, it is necessary to take into account that for a month and a half a significant part of imports came as humanitarian or military aid.
“We will see an increase in the trade deficit, but this will be offset by transfers to the secondary income account. That is, free humanitarian aid leads to a neutral impact on the current account,” the deputy head of the National Bank said.
It is also important to keep track of income from IT services, the dynamics of transfers, as there are different scenarios and different opportunities and risks, Nikolaychuk added.
In his opinion, imports will remain suppressed for a sufficiently long period, so the situation with the payment account will not be so bad. “But at the next stage, when we talk about the restoration of the Ukrainian economy after the war, we can count on a greater expansion and current account deficit. But let’s hope for financing from different sources,” the deputy head of the National Bank emphasized.
As reported, the World Bank, in its strongly deteriorated forecast for Ukraine, released this week, expects a current account deficit of 6.8% of GDP this year and its expansion to 16.8% of GDP in 2023.
On February 24, 2022, the National Bank of Ukraine (NBU) transferred part of the profit before distribution in the amount of UAH 19 billion to the state budget of Ukraine to financially support the functioning of the state under martial law, according to the website of the central bank.
“The National Bank promptly transferred part of the profit before distribution at the end of 2021 to the state budget of Ukraine. This amount is UAH 19 billion. This is a step that our state, its Armed Forces and every Ukrainian needs,” Governor of the NBU Kyrylo Shevchenko said.
The decision to transfer part of the profits was made by the Board of the National Bank of Ukraine on February 24, 2022.
As reported, the National Bank opened a special multi-currency account to raise funds for the needs of the Ukrainian army in connection with the introduction of martial law in Ukraine, the armed aggression of the Russian Federation and the danger to the state independence of Ukraine, its territorial integrity.
The National Bank of Ukraine (NBU) has declared insolvent Bank Zemelny Kapital (Land Capital, Dnipro) of former Minister of the Coal Industry Viktor Topolov (94.4% of shares), which as of June 1, 2021 ranked 63rd in terms of total assets (UAH 909.983 million) among 73 banks operating in the country, the press service of the central bank said.
The corresponding decision was approved by NBU decree No. 400-RSh/BT dated August 11, 2021.
“The board of the NBU decided to declare Bank Zemelny Kapital insolvent due to failure to fulfill its obligations to depositors and other creditors because of insufficient funds in the period established by the agreement or determined by the legislation of Ukraine,” the report says.
The NBU noted that the share of the financial institution amounted to 0.04% of the net assets of solvent banks, therefore the classification of the bank as insolvent will not affect the stability of the banking sector of Ukraine, which is stable today.
It is indicated that since the bank on July 1 was classified as a problematic due to the violation of liquidity standards, the financial condition and indicators of the bank deteriorated, the volume of highly liquid assets decreased to a critical level, which led to the emergence of outstanding customer payments.
It is noted that the only owner of the bank, Viktor Topolov, did not provide financial support to the institution, despite Article 58 of the law “on banks and banking activities, which states that the owners of substantial participation in the bank must take timely measures to prevent the occurrence of bank insolvency.
According to the report, 70% of the bank’s depositors will receive deposits in full, since their size does not exceed the amount guaranteed by the Deposit Guarantee Fund of UAH 200,000, while clients with larger amounts of deposits will receive them within the amount guaranteed by the fund.
The National Bank added that in general, the possible amount of payments of the guaranteed sum to depositors as of July 1, 2021 is UAH 435.8 million, or 92% of the total amount of individuals’ deposits.
Ukraine intends to increase the inflow of foreign direct investment (FDI) by 2025 to $15 billion per year, while at the end of 2020 their outflow amounted to $420 million, and in 2021 the National Bank predicts a recovery in FDI inflows at the level of $3 billion.
The targets are enshrined in the National Economic Strategy 2030 posted on the government’s website.
According to it, Ukraine should at least double its real gross domestic product (GDP) in 10 years.
Target indicators are also the following: an increase in exports to $150 billion compared to $49 billion in 2020, an increase in labor productivity by at least 1.7 times, and a decrease in the unemployment rate from 8.6% to 6% in 2030.
As indicated in the strategy, the share of the public sector of the country’s banking system by 2030 should be reduced to 25% from the current 54%.
At the same time, the document contains the intention of the Ukrainian government to keep the state budget deficit at the level of 2-3% of GDP, and the ratio of public debt to GDP at 30-40%.
As for the trade priorities of the state until 2030, here the document sets out plans to increase the share of small and medium-sized businesses of total exports to 40%.
International trade should also be facilitated by the reduction of the time for passing customs procedures to average European indicators, as well as the synchronization of the work of the customs authorities.
In addition, the National Strategy provides for an increase in the share of investment imports by at least 30% by 2030.
